HONOURABLE SRI JUSTICE P. NAVEEN RAO WRIT PETITION No. 16588 of 2014 Date : 23-12-2014 Between :
NCC Limited (formerly Nagarjuna Construction Company Limited) Office at NCC House, Survey No. 64, Madhapur, Hyderabad -500 081 and Nizam’s Institute of Medical Sciences (NIMS) Panjagutta, Hyderabad, rep by its Director and another … Petitioner … Respondents The Court made the following:
HONOURABLE SRI JUSTICE P. NAVEEN RAO WRIT PETITION No. 16588 of 2014 ORDER:
The petitioner is a construction company and has entered into an agreement with Nizam’s Institute of Medical Sciences, Hyderabad (for short NIMS)-first respondent herein, wherein petitioner has undertaken construction of Nizam’s Institute of Medical Sciences University Campus and allied works at Rangapur village, Bibinagar mandal, Nalgonda district. Total contract price agreed upon was Rs.93,18,73,779/- . There are general conditions of contract and specific conditions of contract. Clause 33.0 (g) of specific conditions of contract deals with retention money. According to this clause, within 15 days of award of work, petitioner was required to furnish bank guarantee for an amount equivalent to 2.5 % of the contract price or in the alternative, the first respondent is entitled to retain 10% from each of the interim certificates subject to maximum of 5 % of the contract price. In case bank guarantee is furnished, first respondent is entitled to retention of money @ 5 % only subject to maximum of 2.5 % of the contract price. Such retention money would be released after defect liability period is over. In addition to the above bank guarantee/higher retention money clauses, the petitioner is also required to furnish performance guarantee. Petitioner has exercised second option of higher deduction from each bill towards retention money instead of furnishing bank guarantee. In the said manner in RA Bills 1 to 9-A, an amount of Rs.4,01,43,350/- was deducted @ 10 % from each of the bills. At this stage, petitioner having found cash constraints felt it desirable to furnish a bank guarantee and to get back the retention money and offered to give bank guarantee for an amount of Rs.6 crore. Accordingly bank guarantee dated 24.10.2011 was obtained from State Bank of India valid for a period of one year i.e., till 23.10.2012 and same was submitted to first respondent vide letter dated 25.10.2011. In view of submission of the bank guarantee, petitioner was requesting for release of retention money earlier deducted. Having found no proper response from the first respondent and since first respondent is repeatedly requesting the petitioner to extend the bank guarantee, as the last extension would expire on 23.7.2014, petitioner instituted this writ petition. Petitioner challenges the inaction on the part of first respondent in releasing the retention money in lieu of furnishing bank guarantee nor permitting the petitioner to cancel the bank guarantee.
2. Heard Sri B Nalin Kumar for petitioner, learned Advocate General for State of Telangana for first respondent and Sri Deepak Bhattacharjee for second respondent bank.
3. Learned counsel for petitioner Sri B Nalin Kumar contends that initially petitioner was against furnishing bank guarantee and agreed for retention of 10 % of the interim bills submitted from time to time to be retained by first respondent. By the time Bill No. 9-A was processed, total accumulated amount towards retention money was Rs.4,01,43,350/- and as petitioner was in need of money, petitioner offered to give bank guarantee so that the retention money can be released. The said offer of petitioner was accepted and accordingly petitioner has obtained bank guarantee from State Bank of India dated 24.10.20111 initially valid for a period of one year for an amount of Rs.6 crores and same was furnished to first respondent vide letter dated 25.10.2011. In the letter dated 25.10.2011, it was specifically mentioned by petitioner that bank guarantee is enclosed and that retention money be released in lieu of bank guarantee submitted. The bank guarantee furnished by petitioner was accepted and kept with the first respondent. Thereafter petitioner was continuously requesting for release of the retention money. At no point of time, first respondent stated that the bank guarantee is not in lieu of retention money, therefore petitioner is not entitled to release of retention money. On the contrary, there has been regular correspondence asking petitioner to extend the bank guarantee from time to time. It is illegal on the part of the first respondent not consider the request of the petitioner for release of retention money and to keep the retention money as well as bank guarantee. Such action of first respondent is contrary to terms of contract, amounts to arbitrary exercise of power and authority. In terms of clause 30.0 (g) of Specific terms of contract, the first respondent is entitled to have higher percentage of retention money or bank guarantee but not both.
4. Learned counsel for petitioner further contends that if petitioner is due any money or first respondent is not satisfied with work undertaken by the petitioner, the first respondent is entitled to recoup that money out of performance guarantee separately furnished by petitioner. He therefore contends that it is illegal to retain both on lame excuse that petitioner owes some money to first respondent, therefore first respondent is entitled to retain the bank guarantee also.
5. Learned counsel for petitioner further contends that in fact huge amount is to be paid by first respondent and there is delay in completion of work since first respondent is not cooperating and there are several lapses on the part of the first respondent which contribute to the delay. Along with reply a detailed statement of account of entitlement of claim of petitioner is filed.
6. Learned Advocate General for the State of Telangana, on behalf of the first respondent submits that relationship between petitioner and first respondent is one of contractual and if the petitioner has any grievance with reference to application of any of the provisions of the contract, petitioner has to avail appropriate remedies available in common law and writ petition enforcing the terms of contract is not maintainable. Learned Advocate General further contends that petitioner has already invoked the arbitration clause and filed Arbitration Application No. 22 of 2014 which is pending consideration before this Court and when petitioner has already invoked the Arbitration clause on the same issue, this writ petition is not maintainable.
7. In support of his contentions, learned Advocate General relied on the following decisions:
Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co.
[1] [2]
(Engineers) (P) Ltd. , Larsen & Toubro Ltd. v. Maharashtra SEB , Harbin Power Engineering Co. Ltd. Vs. State Bank of India
[3]
, Empire
[4]
Jute Co. Ltd. v. Jute Corpn. of India Ltd and Padmavathi
[5]
Constructions Vs A.P. Industrial Infrastructure Corporation ltd In support of the contention that two parallel remedies are not maintainable, learned Advocate General relied on Delhi Gate Auto Service Station v. Bharat Petroleum Corpn. Ltd
[6]
.
8. Learned Advocate General contends that excess payments were made to petitioner which are to be recovered and petitioner has deliberately stopped undertaking the work for long time and there are several irregularities noticed and investigation is in progress. That though more than 5 years time lapsed, so far the work is not completed and petitioner is solely responsible for inordinate delay which is causing lot of inconvenience to public. In terms of Clause 60 (a) of Preliminary Specifications to Andhra Pradesh Standard Specifications, first respondent is entitled to retain all securities available in case of suspension of work to safeguard interest of the Government as well as the institute and therefore not releasing the bank guarantee is within the competence of first respondent. No illegality or irregularities are committed by first respondent in not releasing the bank guarantee nor retention of money and the same was in accordance with terms of contract.
9. Learned Advocate General vehemently contended that first respondent has never given any undertaking for refund of retention money against bank guarantee. The bank guarantee furnished by the petitioner is on his own free will having noticed that first respondent is in the process of taking steps to recover excess money paid, towards the excess money paid, the bank guarantee is furnished by the petitioner. He therefore contends that first respondent is entitled to retain the retention money accumulated so far and also to retain the bank guarantee.
10. As admitted by the learned counsel for petitioner and learned Advocate General, the contract is subsisting and petitioner is undertaking the construction as on today. The only issue for consideration in this writ petition is whether the first respondent is entitled to retain bank guarantee also and refuse to refund retention money.
11. Learned Advocate General raised preliminary objection on maintainability of writ petition.
12. In Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and others
[7]
, Supreme Court held as under:
“It is clear that (a) in the contract if there is a clause for arbitration, normally, a writ court should not invoke its jurisdiction; (b) the existence of effective alternative remedy provided in the contract itself is a good ground to decline to exercise its extraordinary jurisdiction under Article 226; and (c) if the instrumentality of the State acts contrary to the public good, public interest, unfairly, unjustly, unreasonably discriminatory and violative of Article 14 of the Constitution of India in its contractual or statutory obligation, writ petition would be maintainable. However, a legal right must exist and corresponding legal duty on the part of the State and if any action on the part of the State is wholly unfair or arbitrary, writ courts can exercise their power.”
13. In ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd., {(2004) 3 SCC 553} Supreme Court considered earlier decisions on scope of maintainability of a writ petition where there are disputed questions of fact involved and when an action of an instrument of state in contractual matters is challenged as arbitrary. Supreme Court held as under:
“19. Therefore, it is clear from the above enunciation of law that merely because one of the parties to the litigation raises a dispute in regard to the facts of the case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. In the above case of Gunwant Kaur (1970) 1 SCC 582) this Court even went to the extent of holding that in a writ petition, if the facts require, even oral evidence can be taken. This clearly shows that in an appropriate case, the writ court has the jurisdiction to entertain a writ petition involving disputed questions of fact and there is no absolute bar for entertaining a writ petition even if the same arises out of a contractual obligation and/or involves some disputed questions of fact.
….
….
27. From the above discussion of ours, the following legal principles emerge as to the maintainability of a writ petition:
(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.
(b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule.
(c) A writ petition involving a consequential relief of monetary claim is also maintainable.
28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks ((1998) 8 SCC 1) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction.”
14. In Union of India and others Vs Tantia Construction Private Limited
[8]
, on maintainability of writ petition even if arbitration clause is incorporated in the contract. Supreme Court held as under:
“Apart from the above, even on the question of maintainability of the writ petition on account of the arbitration clause included in the agreement between the parties, it is now well established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution.
We endorse the view of the High Court that notwithstanding the provisions relating to the arbitration clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the writ petition filed on behalf of the respondent Company. We, therefore, see no reason to interfere with the view expressed by the High Court on the maintainability of the writ petition and also on its merits.”
15. In Baba and Co., Nellore v. Hindustan Petroleum Co.Ltd., [9] Mumbai and others the prayer sought was for issuance of writ of mandamus declaring the action of the respondents in not handing over the vacant possession of the premises. The respondent petroleum company raised preliminary objection that the writ petition was not maintainable. Having regard to the nature of the reliefs sought, it was contended that respondent came into possession pursuant to the contractual obligations by entering into the lease and to seek delivery of the possession, petitioner has to avail common law remedy, but not remedy under Article 226 of the Constitution of India. It was also contended that there are several factual disputes and relief cannot be granted in the writ petition.
16. The said contention of the respondent was rejected by this Court. This Court relied on the decision of the Supreme Court in ABL International
[10]
Ltd., Hindustan Petroleum Corporation Ltd. and another v. Dolly Das and decision of this Court in W.P.No.22721 of 1998 and batch dated 25.07.2001 to hold that the writ petition is maintainable. This Court held as under:
“…. This Court is of the view that the bar under Article 226 is not an absolute bar for grant of relief even in matters relating to contracts. In the judgments referred above, in categorical terms, it is held that when there are no factual disputes, even this Court can entertain the petitions filed under Article 226 of the Constitution of India for grant of relief.”
17. This decision of the learned single Judge is affirmed by the Division Bench of this Court in W.A.No.1204 of 2012 dated 22.04.2013.
18. In Hyderabad Urban Development Authority, reconstituted as Hyderabad Metropolitan Development Authority, Secunderabad Vs. M/s IBC Knowledge Part Private Limited rep by its Managing Director,
[11]
Yunus Zia and others a Division bench of this Court reviewed the case law on the subject of maintainability of writ petition in contractual matters. In para- 48, the Division Bench summarized the principles deducible from precedents. Para 48 reads as under:
“48. On an analysis of the above decisions of the Supreme Court, it is clear that contractual obligations may fall under judicial review if there is some public law element involved therein. Where the dispute lies within the contractual field pure and simple in the realm of private law a writ petition is not maintainable. In such cases, the relations between the parties are governed by the contract which determines the rights and obligations of the parties inter se. However, where there is an element of arbitrariness or unreasonableness, illegality, irrationality or procedural impropriety in the action of state authorities offending Article 14 of the Constitution of India, even in respect of a dispute arising out of a private contract, the Court, in exercise of its power of judicial review under Article 226, can entertain the matter and grant relief as per law.”
19. In Larson and Toubro Limited the issue for consideration was whether injunction against enforcement of the bank guarantee can be granted by writ Court. Supreme Court held that such injunction can be granted only in the event of fraud or irretrievable injustice. Similar view was taken in Hindustan Steel Workers Construction Limited. The principles laid down by Supreme Court on the parameters of interference against invocation of the bank guarantee is followed by this Court in Harbin Power Engineering Company Limited. Case on hand is not relating to invocation of the bank guarantee.
20. In Padmavathi Constructions writ petition was filed by contractor claiming certain amounts alleged to be due to him from the State. The contract is non statutory and claim of the petitioner therein was disputed by the State and the contract contain an arbitration clause. This Court therefore held that matter can be agitated either in Civil Court or by way of arbitration and writ petition does not lie.
21. In Empire Jute Company Limited Supreme Court held that as there are disputed questions of fact and law involved, the High Court ought to have left the parties to avail the remedies under arbitration clause that existed in the contract.
22. With reference to specific objection raised by the learned Advocate General that petitioner having availed arbitration remedy by filing an Arbitration Application for appointment of an Arbitrator which application is pending consideration before this Court, it is not permissible for the petitioner to institute writ petition on the same issue, it is seen from the averments of the petitioner that the Arbitration Application is filed for resolution of disputes arising out of non payment of amounts under running bills. It is entirely different issue for consideration in the said Arbitration Application.
23. Therefore, merely because petitioner has invoked arbitration clause, and filed Arbitration Application No. 22 of 2014, it cannot be said that petitioner is not entitled to invoke the extraordinary jurisdiction of this Court by instituting a writ petition on an entirely different cause of action. The issue agitated in this writ petition is not covered by claim in Arbitration Application. As held by Supreme Court and this Court in the precedents referred to above notwithstanding an arbitration clause writ petition is maintainable.
24. There are no disputed questions of fact involved in this case. The respective positions of parties are well demarcated. The only issue for consideration is contrary to Clause 30.0(g) of specific terms of contract whether first respondent can retain the bank guarantee and refuse to refund excess retention money also. As discussed hereunder the action challenged in this writ petition is vitiated by element of arbitrariness, irrationality and illegality. Thus, writ petition is maintainable.
25. The relevant clause is clause No. 30.0 (g) of Specific conditions of contract, which reads as under:
“RETENTION MONEY:- Within 15 days of award of work, the contractor shall furnish a bank guarantee from any nationalized/Schedule bank for an amount of 2.5 % ( Two & half) of the contract price in the form approved by the Engineer and having validity upto completion period with a claim period of three months as per format attached at Annexure-E. Further retention money @ 5 % (five) shall be deducted from each interim certificate from First RA bill subject to a maximum of 2.5 % (Two & half) of the contract price and shall be released after defect liability period.
Alternatively/or Retention money at the rate of 10 % (ten percent) shall be deducted from each interim certificate subject to the maximum of 5 % (five percent) of the contract price after approval by engineer.”
26. After the contract is awarded, it is mandatory for the contractor to furnish bank guarantee of an amount equivalent to 2.5 % of the contract value and in the event of furnishing bank guarantee, first respondent is entitled to retain same till the contract is successfully concluded. In case of not furnishing a bank guarantee, first respondent is entitled to deduct 5 % of each of the bills submitted during the period of contract, however, such total deduction shall not exceed 2.5 % of the total contract value. The option is available to the contractor to request the first respondent to deduct 10 % as retention money from each of the bills subject to an outer limit of 5 % of the total contract value in lieu of submission of bank guarantee. Thus, either the contractor has to furnish a bank guarantee or request the first respondent to deduct 10 % from each of the bills as retention money. The clause is very clear to the extent that it is only either of them and not both. Initially petitioner has opted for higher retention money instead of furnishing bank guarantee. However, having realized that higher retention money is creating difficulties in free cash flow and in attending to various obligations, petitioner came forward to furnish a bank guarantee as per first option of the clause. Accordingly, bank guarantee dated 24.10.2011 was obtained and furnished to first respondent on 25.10.2011.
27. As seen from the covering letter dated 25.10.2011 enclosing the bank guarantee, the intention of petitioner was very clear that petitioner is furnishing bank guarantee in lieu of higher retention money option and letter urges to refund the higher retention money by accepting the bank guarantee. As on the date of submission of the bank guarantee, retention money accumulated was far less than Rs.6 crore i.e., the value of the bank guarantee. The bank guarantee was accepted without demur by first respondent. In subsequent correspondence petitioner went on requesting the first respondent to release the retention money in lieu of acceptance of bank guarantee. However, there was no denial by the first respondent. First respondent was also corresponding with the petitioner from time to time requesting the petitioner to extend the bank guarantee but never informed the petitioner that the bank guarantee was accepted not as a substitute for higher retention money but for some other purposes. Such a plea is raised for the first time in this writ petition. When the term of contract is clear and specific, one party to the contract cannot arbitrarily decide the issue adversely affecting the other party. The action of the first respondent in view of provision contained in Clause 30.0(g) of the specific conditions of contract is ex-facie illegal, more so, when first respondent was silent on the demand of the petitioner. Even though there is no written acceptance in clear terms that the bank guarantee furnished by the petitioner was in lieu of higher retention money, by subsequent conduct it is deemed that first respondent consented for such course and has acted accordingly.
28. Having regard to the specific provisions of contract in this case and the background in which the bank guarantee is furnished by the petitioner company, the action of the first respondent in refusing to refund the higher retention money or return the bank guarantee is ex-facie illegal, amounts to arbitrary exercise of power by an instrumentality of the State and is irrational. The petitioner is entitled not to renew the bank guarantee. The first respondent is directed to return the original bank guarantee to the petitioner within a period of two weeks from the date of receipt of copy of this order. It is made clear that issue considered in this writ petition is only with reference to entitlement of first respondent to retain bank guarantee while retaining its right to retain 10 % from each of the interim bills as with reference to provision in clause 30.0 (g) of the contract. All other inter-se disputes are left open.
Accordingly, writ petition is disposed of. No costs. Having regard to the same, miscellaneous petitions are closed.
P NAVEEN RAO,J Date: 23.12.2014 Tvk Note: Issue copy in two days.
HONOURABLE SRI JUSTICE P. NAVEEN RAO
WRIT PETITION No.16588 of 2014
Date :23-12-2014
[1] (1995) 6 SCC 76
[2] (1995) 6 SCC 68
[3] (2014 (4) ALD 159
[4] (2007) 14 SCC 680
[5] 1996(3) ALD 591
[6] 2009 (16) SCC 766
[7] (2010)11 SCC 186 = 2011 (1) ALD 22 (SC)
[8] (2011) 5 SCC 697
[9] 2012 (2) ALD 752
[10] (1999) 4 SCC 450
[11] 2013 (2) ALT 463(DB)